Notorious patent troll dings Nebraska taxpayers for $750,000

It’s no secret the U.S. patent system is dysfunctional but, still, this one’s a doozy: a Texas patent troll that sent thousands of shakedown letters to small businesses, and has been sanctioned by the federal government, will collect big time courtesy of Nebraska taxpayers — all because state officials tried to shut down their hustle.

This latest twist in the sorry situation can be seen in recent court documents that show Nebraska has agreed to pay $750,000 to resolve claims that the state’s Attorney General violated the patent troll’s civil rights when it ordered the troll to stop sending so-called demand letters.

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Those letters demanded that small businesses pay a fee for infringing on patents related to scanning or digital signage, or else face an expensive lawsuit. The patents in question are controlled by lawyers who have made a business of demanding $1,000 per employee from small companies that lack the money or sophistication to push back against highly questionable legal claims.

The antics of these lawyers, who operate through shell companies known as MPHJ and Activision TV, have been the subject of damning journalistic features and led them to be called “bottom feeders” by a U.S. Senator. In response, state governments in Vermont and Nebraska turned to consumer protection laws in an effort to protect their businesses from the shakedown.

But while Vermont was largely successful in driving the trolls from the state, the outcome unfolded differently in Nebraska where a federal judge ruled in September that the Attorney General’s attempt to crack down on the shakedown letters violated the troll’s First Amendment rights. The judge also ruled that Nebraska’s attempt to restrict the activities of law firm Farney Daniels — the same firm under fire from the FTC — violated the rights of the trolls to seek legal counsel of their choosing.

So to sum up: a patent trolling outfit, that relies on shell companies acting as an alter-ego for a notorious law firm, expanded to Nebraska in order to shake down legitimate businesses. When the state tried to protect its own businesses from the shakedown, a judge ordered its taxpayers to pay $750,000 to the patent troll, which can presumably use the money to fund new legal campaigns.

Somehow this is what passes for innovation under America’s current patent system.

Here’s a court filing showing the payment arrangement which Omaha.com reports will cost the Nebraska Attorney General’s office about 10 percent of its annual budget.